Fiscal cliff fears weigh on investors

Media Reporter

The sharemarket has finished relatively flat for the week as investors remain cautious over the looming US fiscal cliff and a once-in-a-decade change of leadership in China.

The benchmark S&P/ASX200 finished just 1.9 points higher for the week at 4462.

Among the sectors, health enjoyed a nice run, adding 2.2 per cent, telecoms and consumer staples rose 0.5 per cent each and materials gained 0.3 per cent. Financials and energy both finished lower for the week, falling 0.1 per cent and 0.9 per cent respectively.

For the day, the ASX200 lost 21.8 points, or 0.5 per cent, to 4,462, halving its early losses. The broader All Ordinaries dropped 19.7 points, or 0.4 per cent, to 4482.5.

Despite a spike in the market late Wednesday after the US presidential election was called in favour of incumbent Barack Obama, investors forfieted most of those gains as the realisation that the looming problem of the fiscal cliff is far from solved.

‘‘Post US election, everyone got to prophesising what is going to happen with the fiscal cliff, our assumption has been that most of the shock will be avoided,’’ said JPMorgan Economist Ben Jarman.

‘‘We can’t avoid is completely but it looks like fiscal policy will drag around 2 per cent off US growth from the start of next year.’’

The result of the US election helped the Australian dollar surge during the week, jumping almost a full cent for the week.

Mr Jarman said the re-election of Barack Obama meant that quantitative easing would be more likely to continue. This weakened the US dollar against most major currencies and the Australia dollar was no exception.

The dollar jumped from a low of 103.32 US cents on Monday to finish at 104.22 US cents in late trading on Friday.

Mr Jarman said he expected the dollar to remain between 104-106 US cents for the next year or so.Markets are also waiting on another important global, although much less publicised, the transition of power within the Chinese Communist Party, with investors cautiously waiting to see how China’s new leaders will approach the coming decade, after a huge surge of growth of the previous period.

‘‘If they’re of a mind to focus on this shift in the pattern of growth towards consumption and away from things like infrastructure, that will have ramifications for Chinese growth, for global commodities markets and therefore for the Australian economy and the Aussie dollar,’’ said Mr Jarman.

This wait and see approach was also taken by the Reserve Bank, which kept the official cash rate on hold at 3.25 per cent at its monthly meeting on Tuesday.

‘‘If you characterise the October rate cut as them being a little bit ahead of the curb and the news having then got a little better again, that was the clincher for leaving it rates on hold,’’ said Mr Jarman.

Mr Jarman said that were would likely still be some more easing to come in this cycle, around 50 basis points, but the early signs of prior easing were starting to gain a bit of traction.

‘‘The triggers for further easing are going to be further data weakness. We think the data has further to fall and the case will become clearer as we move into next year,’’ he said.

On the local sharemarket yesterday, the major miners were down on the day, Rio Tinto lost 1.1 per cent to $58.69, while BHP fell 0.6 per cent to $34.46. Iron ore miner Fortescue lost 0.3 per cent to $3.93.

Among the banks, NAB and Westpac weighed heavily on the market, trading ex-dividend. NAB fell 4.2 per cent to $23.81, while Westpac dropped 2.9 per cent to $25.17.

CBA finished up 1.1 per cent to $58.82 and ANZ rose 0.8 per cent to $24.56.

Origin was one of the big losers for the day, slipping 5.7 per cent to a five-year low of $10.42, after issuing a profit warning overnight. The energy producer and retailer revised its profits before tax from a range of 5-10 per cent, to 0-5 per cent.

Retailers shares enjoyed a boost for the day, with Myer jumped 4.5 per cent to $1.99, David Jones rose 0.8 per cent to $2.46, Harvey Norman gained 0.8 per cent to $1.82 and JB Hi-Fi added 0.6 per cent to $10.